Excise duty: Manufacturers to raise alcoholic beverage prices by 15%
Following the implementation of a new excise duty regime on alcoholic beverages and tobacco products from Monday, June 1, 2018 by the Minister of Finance, Mrs. Kemi Adeosun, sales of the affected products have already slowed down as the manufacturers work on a new pricing structure.
Our correspondent gathered that the increase in prices would take effect immediately just as the new tariff structure.
The Chief Executive Officer of a wine manufacturing firm in Lagos, PEL Extract Limited, Mr. Kotey Linus, estimates that there will be over 15 per cent increase in the price of wines.
According to him, whereas a crate of wine from his firm is currently N3,000, with the new tariff, it will now sell for N3,500.
The Group Chief Operating Officer, Sona Group of Companies, Mr. Ashok Manghnani, said that the firm was already looking at the new tariff structure to work out new prices for its wines.
He stated that since the margin of sales was very small, the firm had no choice than to pass the cost to the final consumers, adding that there were efforts to ensure that the burden was not too much on the consumers.
This is taking place even as the Distillers and Blenders Association of Nigeria has reportedly taken the matter to court.
On getting wind of the planned increase duty, the association had in February addressed an open letter to President Muhammadu Buhari, saying that it would threaten over N420bn worth of investments.
In the letter, which was published by The PUNCH, the association maintained that far from being luxury items, the products by its members were largely consumed by the low-end and mainstream segment of the society, adding that any huge adjustment in the prices of the products occasioned by high excise duty could lead to low demand and staff lay-offs.
The industry, according to the operators, contributes N60bn annually to the economy in corporate tax and Value Added Tax, while employing 10,000 people directly and 15,000 indirectly.
The operators feared that the increase could kill the wine and spirits sub-sector.
“Most locally produced brands are packed at about N250 per bottle and a massive increase in the excise duty, ranging from average of N142 to N175 per litre, is a decision to kill the industry. This will also put local manufacturers at a disadvantage against imported brands,” the association noted.
It added that its members were operating with marginal gains and any increase in tariff would bring them to a negative balance, forcing them to close shop and retrench workers.
The implication of transferring costs to consumers whose purchasing power has been wiped out by inflation and unemployment, according to the operators, is that sellers of the goods may not find buyers.
The Head, Economics and Statistics, Manufacturers Association of Nigeria, Mr. Ambrose Oruche, said that manufacturers’ warehouses in the country were full of stocks of unsold goods owing to lack of market.
The Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, told our correspondent that it was not the best time to even consider imposing excise duty on the goods.
He said, “If the government is trying to grow the local industry, imposing duties on locally manufactured goods is a contradiction of that objective. That is what we are saying about this drive to earn revenue. If the revenue drive is becoming too aggressive, it will negatively affect investment and the capacity of businesses to create jobs.
“The imposition of duties on these consumer goods will push up the cost of production and the prices of the items will be increased.
“These firms are already paying Corporate Tax, Withholding Tax, Education Tax and so many other taxes. Imposing excise duty on their products again will not be a good idea.”
Against the backdrop of the minister’s claims that the excise duty was decided after due consultations with stakeholders, MAN, a member of the Presidential Tariff Technical Committee, said it rejected the tariff increase at the last meeting it held with Adeosun.
The Director-General, MAN, Mr. Segun Ajayi-Kadiri, stated that the association had rejected any imposition of tariffs on locally manufactured goods, because the industry was still struggling for survival.
Ajayi-Kadiri pointed out that manufacturers of wines were mostly operators in the Small and Medium Enterprises sector of the economy, adding that the new regime would make them less competitive against other players.
The President, MAN, Dr. Frank Jacobs, confirmed this, arguing that the duty increase would cause the firms producing the affected items to shut down, while increasing job losses.
He explained, “During the last presidential engagement forum, I talked about the impact of this excise duty increase on the manufacturing sector. I made it clear that if they go ahead and implement that policy, within the three years when that policy will be in full force, many of the companies that are involved in those products must close shops.
“They definitely must close shops, because there is no way they can become competitive.”